How Do I Choose a General Contractor and What Kind of Contract Should I Sign?
I am going through, from my attorney vantage point, multiple disputes between developers (and flippers and wanna-be developers), and general contractors. These disputes are occasionally about the poor performance that a contractor is doing. More often than not, they are issues that could have been prevented had there been proper vetting of the contractor and proper analysis of the contract between the parties before work began. In this two-part series, I go over the process of choosing a general contractor, and then once you do, what type of contact you should sign. In this first part, I discuss what steps you should take when selecting the contractor for your project.
When I rehabbed my own home a number of years ago, I went through the 203k loan process. I figured that because I was a lawyer and because the loan was underwritten by the bank and involved bank-mandated inspections, that we would be able to ensure a good job was done. I vetted the contractor to no standard but my own gut, and it turned out there were some flags I should have seen at the time but did not know to look for them, and in hindsight would have done things differently given another opportunity.
That being said, since then, I have spent a lot of time helping clients at Console Matison LLP decide how to choose a contractor for their project. This blog is focused on what to look for in the contractor themselves, and what to look for in the actual legal contractual agreement you have with them.
So you’re meeting with a bunch of contractors and trying to figure out how to start your first job. If you’re confused about when and if a contractor you hire needs to hold a license, don’t feel bad. Each state has its own set of licensing rules and regulations. Even individual cities themselves have their own requirements for how to get licensed to perform GC work. In Philadelphia, if you are doing work and being paid more than $500 for that work, you need a contractor’s license. To get the license, you need to have active workers’ compensation insurance, general liability and motor vehicle liability insurance. A GC in Philly needs business tax accounts with the City, as well as OSHA (Occupational Health and Safety Administration) certificates.
Of course, it is paramount that your contractor is licensed. This isn’t from a “I’m a lawyer” perspective. Using a licensed Philadelphia contractor means that they’ve met the most minimal requirements for that line of work as required by the jurisdiction. This is very important, if not for any other level than the fact that it shows they can follow simple instructions. The insurance requirements are obviously very important too as it protects the owner by helping to ensure that contractors meet the minimum insurance requirements. In the event that there are issues with the job, or with the GC’s employees, you are going to want to know that there are deep pockets insuring against anything major completely screwing up your job.
If your project requires a building permit but the contractor failed to obtain one due to being unlicensed, a building inspector may stop the work until he or she is satisfied that a licensed contractor has obtained the proper permits.
Owners who use unlicensed contractors may also find little recourse if a problem develops after the work is completed. In 2014, Philadelphia passed a law prohibiting someone from hiring an unlicensed contractor, and the law authorizes the imposition of fines and imprisonment of up to ninety (90) days for violators. Now there are not a ton of cases of anyone getting those fines, that happens more when a GC knowingly hires an unlicensed subcontractor, but still, it is out there.
Next up, you want to check to verify that the contractor has a history and a clean-ish background. Listen, everybody gets sued, and so a couple of named-mentions on a lawsuit or two shouldn’t ever be an automatic bar against hiring a contractor. However, send those cases to your lawyer. Have her read them and tell what the contractor is being accused of. Dig deeper. Is it just a disgruntled unreasonable former customer? Or is there something there that speaks to the unreliability of the GC’s character?
Here is an additional verification tip. Before hiring, check the contractor’s listing on Yelp and on other sites you might know about. Reviews are good, but even more so than lawsuits, should be taken with a grain of salt. Everyone’s a critic. If there are multiple negative reviews that seem to indicate a pattern of bad behavior, ask the contractor about it and see what he says.
Check back next time for part two where I discuss what kind of contract you should sign after choosing your general contractor. I’d love to hear your thoughts, if you want to talk contractors, or real estate generally, or business development for your Pennsylvania or New Jersey business, do not hesitate to reach out to Console Matison LLP. You can find me directly at firstname.lastname@example.org or call me at (267) 603-2493.